UPDATED: NADA pushes back against FTC’s ‘heavy-handed’ vehicle-purchasing rule
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Image courtesy of the Federal Trade Commission.
Editor’s note: Our report now includes comments from the National Independent Automobile Dealers Association (NIADA).
The Federal Trade Commission said its newest rule released on Tuesday will prevent “bait-and-switch tactics and hidden junk fees” when consumers purchase vehicles.
The FTC said the Combating Auto Retail Scams (CARS) Rule also includes “clear” protections for members of the military and their families.
Officials said the CARS Rule will take effect on July 30.
The National Automobile Dealers Association (NADA) strongly disagreed with the premise and elements of this new FTC rule.
“This regulation is heavy-handed bureaucratic overreach and redundancy at its worst, that will needlessly lengthen the car sales process by forcing new layers of disclosures and complexity into the transaction,” NADA president and CEO Mike Stanton said in a statement. “The FTC made up data to support its claims, then rejected calls to slow down the process and test the effectiveness of its proposal with real consumers. We are exploring all options on how to keep this ill-conceived rule from taking effect.”
Cherokee Media Group also contacted NIADA chief executive officer Jeff Martin, who shared this reaction.
“It’s frustrating to see the FTC rush this rule out given the extensive questions, concerns, and comments the FTC received about the proposal,” Martin said via an email. “When we met with the FTC at our Policy Conference in September, it was clear there were more questions than answers from the agency.
“Our members are not opposed to well-thought-out, reasonable and responsible regulation, but taking a small sample size and punishing the entire industry for the actions of a few rogue actors does more harm than good for consumers and dealers,” he continued. “We will review the over 370-page rule, help our dealers navigate the new compliance regulations, and explore other options to address some of the overregulation in this rule.”
The FTC explained the CARS Rule prohibits dealers from using “bait-and-switch claims to lure vehicle buyers to the lot,” including about the cost of a car or the terms of financing, the availability of any discounts or rebates, and the actual availability of the vehicles being advertised.
“It also tackles hidden junk fees — charges buried in lengthy contracts that consumers never agreed to pay. In some cases, these fees are for services or products that provide no benefit to consumers,” the FTC said in a news release.
Other requirements of the CARS Rule include:
—No misrepresentations: The rule prohibits misrepresentations about key information, like price and cost.
—Offering price, total payment, and add-ons optional: Dealers have to provide the offering price — the actual price any consumer can pay for the vehicle; tell consumers that optional add-ons (like extended warranties) are not required; and give information about the total payment when discussing monthly payments.
—No “bogus” add-ons: The rule prohibits dealers from charging for any add-on that “does not provide a benefit to consumers.” Examples of such add-ons include warranty programs that duplicate a manufacturer’s warranty, service contracts for oil changes on an electric vehicle, GAP agreements that do not actually cover the car or neighborhood in which it is housed, or other parts of the deal, and software or audio subscription services on a vehicle that cannot support the software or subscription.
—Get consumers’ consent: The rule requires dealers to get consumers’ express, informed consent for any charges that they pay as part of a vehicle purchase.
For members of the military, the FTC said the issues addressed by the CARS Rule are compounded by dealers who “prey especially on young servicemembers, for whom having a vehicle is often vital when stationed on sprawling military bases.”
“Servicemembers have an average of twice as much auto debt as civilians,” the FTC said. “By the age of 24, around 20 percent of young servicemembers have at least $20,000 in auto debt, which creates a substantial challenge to servicemembers’ financial well-being.”
The CARS Rule prohibits dealers from “lying to servicemembers and other consumers about important cost and financing information, and about whether the dealers are affiliated with the military or any other governmental organization.”
Officials added that dealers also are prohibited from “lying about whether a vehicle can be moved out of state (which affects servicemembers and their families, who must frequently move to new duty stations) and whether a vehicle can be repossessed (there are laws that protect many servicemembers from having their vehicle repossessed).”
The FTC said it is creating guidance on the CARS Rule for dealers, including a website with frequently asked questions and other advice as dealerships prepare for the rule to take effect.
“When Americans set out to buy a car, they’re routinely hit with unexpected and unnecessary fees that dealers extract just because they can,” FTC chair Lina Khan said in the news release. “The CARS Rule will prohibit exploitative junk fees in the car-buying process, saving people time and money and protecting honest dealers.”
The FTC issued a notice of proposed rulemaking related to vehicle shopping last June and, during a months-long comment period, the agency received tens of thousands of comments from consumers, servicemembers, veterans, dealers and others about the proposed rule.
“Many auto dealers submitted comments to the proposed rule noting that they lost business to other dealers who used deceptive bait-and-switch tactics. The CARS Rule takes steps to protect not only consumers but also honest dealers and competition,” officials said.
The FTC said it carefully reviewed these comments and made substantial changes to the proposed rule in creating the CARS Rule.
Ashish Vazirani is the acting undersecretary of defense for personnel and readiness.
“The Department of Defense appreciates the FTC’s CARS Rule,” Vazirani said in the FTC news release. “For our servicemembers and their families a car is an essential purchase, and this CARS Rule will help fight predatory practices that target our men and women in uniform. The department is pleased to see the FTC issue the CARS Rule and believes it will contribute to service members’ overall economic security and readiness.”